Why did the PBOC cut?

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From Forexlive:

Comments from Ma Jun, chief economist of the PBOC research bureau in the Financial news (via MNI):

  • Says current inflation is still low
  • PPI’s declines in April and May were particularly sharp, leaving real interest rates higher than the historical average
  • Says weekend rate cut was needed to maintain stable real interest rates and neutral monetary conditions
  • Says current overall liquidity is ll ample & excess reserves are close to historical highs
  • No need for a broad cut in banks’ deposit reserve in the short-term

Its worth being aware that the People’s Bank of China cut interest rates and instituted target cuts to the required deposit reserve ratio over the weekend.

This is likely indicative over their concern re the falls in Chinese stock markets.

More from Nomura:

The policy easing should be viewed as a measure to contain the risk of a hard landing or systemic crisis rather than one to achieve faster growth. In this case, the stronger-than-expected monetary easing may help stem the decline in the equity market following a 10.6% drop over the past two trading days. The positive wealth effect of the equity market on consumption or aggregate demand is limited in China, but an equity market collapse would hurt millions of mid-class households and pose great danger to the economy and social stability.

In short, more growth glide slope.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.